Chapter 5 Export of Services

Chapter 5 Export of Services Effective from 15-03-2005, Export of Services Rules, 2005, govern the transactions of export of services. These Rules def...
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Chapter 5 Export of Services Effective from 15-03-2005, Export of Services Rules, 2005, govern the transactions of export of services. These Rules define the criteria, meeting which, a service can be considered as exports. Further, these Rules provide that if a given service qualifies as export, the exporter of such service has an option not to pay service tax and also he is entitled to claim rebate of the eligible input taxes paid by him on services and goods used for the provision of export services. Prior to 15-03-2005, though there was no concept of ―export‖ as such, the services provided to a person outside India were exempt from service tax under various notifications issued by the Central Government from time to time having different spans of applicability. Under these notifications, the major condition for exemption was receipt of payment for services in convertible foreign exchange. First such notification was issued on 16-10-1998. In the following chapter, we would discuss the Export Rules as amended from time to time and have a brief view of the notifications exempting service tax for payments received in foreign exchange prior to the issue of Export Rules. 1. Export criteria for taxable services Under the Export Rules, all taxable services have been divided into three broad categories, and a separate export criteria has been prescribed for each such category. If a service covered under a given category fulfils the export criteria prescribed for the respective category, it is said to be exported outside India. The three broad categories of services for the purposes of export are: A. Services provided in relation to immovable property B. Services where performance is the essence of service C. Residuary services (not falling under any of the above categories) Out of about 109 taxable services (plus 8 more services introduced by the Finance Act, 2010, for which export criteria is yet to be prescribed) 13 services are covered under Category A, 54 services are covered under Category B and 47 services are covered under Category C. Out of these, 3 services are covered both under Category A and C depending upon the fact whether there are in relation to immovable property or not, and 2 services are not covered under any of the export category. As the export criteria with respect to the above categories of services have undergone changes over the period of time, we will discuss the criteria for each category as effective during different periods in time. Before proceeding to discuss the export criteria for different categories of services, it is relevant to mention here that this year, the Government has taken a significant step in doing away with the anomaly in the export criteria prescribed with respect to four categories of services, namely, Mandap Keeper services, Chartered Accountant‘s services, Cost Accountant‘s services and

Company Secretary‘s services – the new criteria is mentioned at appropriate place in this chapter.. A. Export Criteria for Category A Services—Services provided in relation to immovable property Existing Criteria, effective from 27-02-2010 (a) Service is provided in relation to an immovable property which is located outside India; (b) Payment for such service 1[omitted] is received by the service provider in convertible foreign exchange. It may be noted that 15 taxable services are covered under the above category, and required to satisfy the above criteria to be considered as export. A list of such services is appended at the end of this chapter. Criteria, effective from 01-03-2007 to 26-02-2010 (a) Service is provided in relation to an immovable property which is located outside India; (b) Such service is provided from India and used outside India; (c) Payment for such service 2[omitted] is received by the service provider in convertible foreign exchange. Criteria effective from 19-04-2006 to 28-02-2007 (a) Service is provided in relation to an immovable property which is located outside India; (b) such service is delivered outside India and is used outside India; (c) payment for such service provided outside India is received by the service provider in convertible foreign exchange. Criteria effective from 15-03-2005 to 18-04-2006 (a) Service is provided in relation to an immovable property which is located outside India; 3[(b) such service is delivered outside India; (c) such service is used in business or for any other purpose outside India; and; (d) payment for such service provided is received by the service provider in convertible foreign exchange.] It may be noted that effective from 27-02-2010, the Government has shifted the export criteria for ‗Mandap Keeper Services‘ from performance based criteria (i.e. category B) to a criteria based on location of immovable property (i.e. category A). B. Export Criteria for Category B Services—Services where performance is the essence of service Existing Criteria, effective from 27-02-2010 (a) Provision of such service as is performed outside India (partly or completely); (b) Payment for such service 4[omitted] is received by the service provider in convertible foreign exchange. While the above criteria is applicable to all the services covered under category B, the following 5additional condition has been prescribed for these services to qualify as exports w.e.f. 01-032008 with respect to the Management, Maintenance or Repair Services, Technical Inspection and Certification Services and Technical Testing and Analysis Services—where the taxable services are provided in relation to any goods or material or any immovable property, as the case may be, situated outside India at the time of provision of service, through internet or an electronic

1. 2. 3. 4.

The words “provided outside India” omitted vide Notification No. 30/2007-ST, dated 22-05-2007 (w.e.f. 01-06-2007). The words “provided outside India” omitted vide Notification No. 30/2007-ST, dated 22-05-2007 (w.e.f. 01-06-2007). Ins. vide Notification No. 28/2005-ST, dated 07-06-2005 (w.e.f. 16-06-2005). The words “provided outside India” omitted vide Notification No. 30/2007-ST, 22-05-2007 (w.e.f. 01-06-2007). 5. Vide Notification No. 5/2008-ST, dated 01-03-2008.

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network including a computer network or any other means, then such taxable service, whether or not performed outside India, shall be treated as the taxable service performed outside India. About 54 taxable services are covered under the above category, and required to satisfy the above criteria to be considered as export. A list of such services is appended at the end of this chapter Criteria, effective from 01-03-2007 to 26-02-2010 (a) Provision of such service as is performed outside India (partly or completely); (b) Such service is provided from India and used outside India; (c) Payment for such service 6[omitted] is received by the service provider in convertible foreign exchange. Criteria effective from 19-04-2006 to 28-02-2007 (a) Provision of such service as is performed outside India (partly or completely); (b) such service is delivered outside India and is used outside India; (c) payment for such service provided outside India is received by the service provider in convertible foreign exchange. Criteria effective from 15-03-2005 to 18-04-2006 (a) Service is physically performed outside India (partly or completely); 7[(b) such service is delivered outside India; (c) such service is used in business or for any other purpose outside India; and (d) payment for such service provided is received by the service provider in convertible foreign exchange.] It may be noted that effective from 27-02-2010, the Government has shifted the export criteria for Chartered Accountant‘s services, Cost Accountant‘s services and Company Secretary‘s services from performance based criteria (i.e. category B) to the residuary services criteria based on location of recipient of service (i.e. category C). Recent judicial pronouncements relevant for performance based services: In Intas Pharmaceutical Ltd. v. CST8, it has been held that an assessee is not liable to pay service tax if the taxable services are fully provided outside India. Consequently, service tax would be applicable only where the services are either partly provided in India and partly outside India or are fully provided in India. In CST v. B.A. Research India Ltd.9, it has been that the ‗performance‘ of technical testing and analysis services by a service provider for a recipient located outside India would be completed upon the delivery of the report to the overseas client and, accordingly, such services would qualify as exports. C. Export Criteria for Category C services—residuary services: Under this category, such services are covered as are not covered under the above two categories. These services shall be considered as export for the purposes of service tax provisions, if they satisfy the following criteria: Existing criteria, effective from 27-02-2010: (a) When such services are provided to an overseas commercial or industrial concern for use in commerce or industry: In case the service recipient does not have any commercial establishment or office in India, services provided shall be treated as export if: (i) the recipient of such services, i.e., commercial or industrial concern, is located outside India and; 6. The words “provided outside India” omitted vide 22-05-2007 (w.e.f. 01-06-2007). 7. Ins. vide Notification No. 28/2005-ST, dated 07-06-2005 (w.e.f. 16-06-2005). 8. (2009) 22 STT 230 9. (2009) TIOL 1981

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(ii) payment for such service 10[* * *] is received by the service provider in convertible foreign exchange. In case the service recipient has any commercial or industrial establishment or any office in India, services provided shall be treated as export if the order for provision of such service is made by the service recipient from any of his commercial establishment or office outside India. (b) When such services are provided for use other than in commerce or industry: Such services when provided and used, other than in or in relation to commerce or industry, shall be considered as export if: (i) the recipient of such services is located outside India at the time when such services are received and; (ii) payment for such service 11[* * *] is received by the service provider in convertible foreign exchange. While the above criteria is applicable to all the services covered under Category C, with respect to the services covered under category of ―supply of tangible goods services‖, the following 12additional condition is to be satisfied to qualify as exports— (iii) where the taxable service of supply of tangible goods for use is provided to a recipient located outside India, then such taxable service shall be treated as export of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by such recipient. Note: The above definition of export of service holds true for the 47 (44 services in general and 3services provided in relation to other than immovable property) listed in Rule 3(1)(iii) of the Export of Services Rules. A list of such services is appended at the end of this chapter. Criteria, effective from 01-03-2007 to 26-02-2010: (a) When such services are provided to an overseas commercial or industrial concern for use in commerce or industry: In case the service recipient does not have any commercial establishment or office in India, services provided shall be treated as export if: (i) the recipient of such services, i.e., commercial or industrial concern, is located outside India; (ii) such service is provided from India and used outside India; and (iii) payment for such service 13[* * *] is received by the service provider in convertible foreign exchange. In case the service recipient has any commercial or industrial establishment or any office in India, services provided shall be treated as export if the order for provision of such service is made by the service recipient from any of his commercial establishment or office outside India. (b) When such services are provided for use other than in commerce or industry: Such services when provided and used, other than in or in relation to commerce or industry, shall be considered as export if: (i) the recipient of such services is located outside India at the time when such services are received; (ii) such service is provided from India and used outside India; and (iii) payment for such service 12[* * *] is received by the service provider in convertible foreign exchange. While the above criteria is applicable to all the services covered under Category C, with respect to the services covered under category of ―supply of tangible goods services‖, the following 14[additional condition] is to be satisfied to qualify as exports— 10. The words “provided outside India” omitted vide 22-05-2007 (w.e.f. 01-06-2007). 11. The words “provided outside India” omitted vide 22-05-2007 (w.e.f. 01-06-2007). 12. Vide Notification No. 20/2008-ST, dated 10-05-2008 (w.e.f. 16-05-2008). 13. The words “provided outside India” omitted vide 22-05-2007 (w.e.f. 01-06-2007). 14. Vide Notification No. 20/2008-ST, dated 10-05-2008 (w.e.f. 16-05-2008).

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(iv) where the taxable service of supply of tangible goods for use is provided to a recipient located outside India, then such taxable service shall be treated as export of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by such recipient. Category C Services: Criteria effective from 19-04-2006 to 28-02-2007: (a) When such services are provided to an overseas commercial or industrial concern for use in commerce or industry: In case the service recipient does not have any commercial establishment or office in India, services provided shall be treated as export if: (i) the recipient of such services, i.e., commercial or industrial concern, is located outside India; (ii) such service is delivered outside India and used outside India; and (iii) payment for such service provided outside India is received by the service provider in convertible foreign exchange. In case the service recipient has any commercial or industrial establishment or any office in India, services provided shall be treated as export if the order for provision of such service is made by the service recipient from any of his commercial establishment or office outside India. (b) When such services are provided for use other than in commerce or industry: Such services when provided and used, other than in or in relation to commerce or industry, shall be considered as export if: (i) the recipient of such services is located outside India at the time when such services are received; (ii) such service is delivered outside India and used outside India; and (iii) payment for such service provided outside India is received by the service provider in convertible foreign exchange. Category C Services: Criteria effective from 15-03-2005 to 18-04-2006: (a) When such services were provided to an overseas commercial or industrial concern for use in commerce or industry: In case the service recipient, i.e., commercial or industrial concern, did not have any commercial establishment or office in India, the sole criteria for export was that such recipient of services was located outside India. (b) When such services were provided to an overseas commercial or industrial concern for use in commerce or industry and such recipient also had a commercial or industrial establishment or any office in India, such service was treated as export only if: (i) order for provision of such service was made from outside India; (ii) such service was delivered outside India and used in business outside India; and (iii) payment for such service was received by the service provider in convertible foreign exchange. (c) When such services were provided for use other than in commerce or industry: Sole criteria for export were that the recipient of such services was located outside India at the time when such services were received. 2. Interpretation of the terms used to define exports (In this para, the expressions ‗services provided from India‘ and services used outside India‘ have been discussed. It may be noted that effective from 27-02-2010, the Export Rules have done away with the condition of provision of service from India and its use outside India, thus the said expressions are not relevant in context of defining export of service from 27-02-2010. However, as the interpretation of these expressions remains relevant for the past period, we have retained the discussion in the following para.) The international norm in case of destination based value added taxes is that the exports should not be taxed and imports should be taxed in every country so that in a cross border transaction, one service gets taxed in one country only, that is, in the country of import. With this objective,

the countries following VAT system define export using some proxies like ―supplier‘s or recipient‘s residence or permanent/fixed establishment, the physical place of performance, the place of use and enjoyment, etc.‖ The Government of India also followed this norm by using the proxies like ―service performed outside India‖, ―service delivered outside India‖, ―service used outside India‖, and finally ―service provided from India and used outside India‖, in prescribing the export criteria under the Export Rules. However, the Government did not define these proxies, thereby leaving scope for different interpretations of the same expression (proxy) leading to multiple interpretations. Some of the proxies like ―service performed outside India‖ are simple to interpret and may not create a gap in understanding, however, some of them like ―service provided from India‖ and ―service used outside India‖ are not that straight and are causing lot of debate in their interpretation. Following is a brief discussion on the possible interpretation of these proxies. • Service provided from India • Service used outside India Service “provided from” India Export Rules have been amended w.e.f. 01-03-2007 to include a new condition for exports, which reads as ―service should be provided from India and used outside India‖. In this context it becomes important to understand meaning of the expression ―service provided from India‖. As per American Heritage Dictionary, 4th Edition, ―provide‖ means to furnish; supply; to make available; afford; to set down as a stipulation; to make ready ahead of time; prepare; to take measures in preparation; to supply means of subsistence; to make a stipulation or condition. Thus in common parlance, the expression ―provide‖ is akin to ―supply of service‖. Now the question is to determine when a service is considered as provided ―from India‖. To understand the perspective of this expression, it is relevant to see how dictionaries interpret the use of word ―from‖ before a ―place‖. As per Cambridge Dictionary, preposition ―from‖ when used before a ―place‖ show the place where someone or something starts. As per Random House Unabridged Dictionary, preposition ―from‖ used before the place, thing, person, time etc. refers to the point at which an action, journey, period of time etc. begins. From the above it is clear that the word ―from‖ used before name of a place denotes the place of beginning or commencement of something from that place. Based on this interpretation, the condition ―service should be provided from India‖ would mean that the service should begin or commence from India. The condition does not extend to the place where service ends. Therefore, if a service commences from India, whether such service ends in India or not would be of no consequence to determine export status of a service. Therefore, this part of the export condition gets satisfied where the service commences from India, which practically happens in every case where service provider is based in India. Service “used outside” India The expression ―used outside India‖ is not defined in service tax law. Some of the relevant dictionary meanings have been reproduced below: Advanced Law Lexicon, 3rd Edition, 2005—―Used for the purpose of business‖—To entitle an assessee to claim an allowance under S. 10(2)(vi) of the Income Tax Act (11 of 1922) on account of depreciation of building, machinery, plant etc., ―used for the purpose of business‖, it is not necessary that there should have been an actual working of the machinery in the year of account. The word “used” may be given a wider meaning so as to embrace passive as well as

active user. When machinery is kept ready for use at any moment in a factory under an express contract from which taxable profits are earned, the machinery can be said to be used for the purpose of business which earns the profits, though it is not actually worked.15 Black’s Law Dictionary, 6th Edition—Use.—To make use of; to convert to one‘s service; to employ; to avail oneself of; to utilise; to carry out a purpose or action by means of; to put into action or service, especially to attain an end. State v. Howard, 221 American Heritage Dictionary, 4th Edition—Use.—To put into service or apply for a purpose; employ; to avail oneself of; practice: use caution; to conduct oneself toward; treat or handle; To seek or achieve an end by means of; exploit; to take or consume; partake of. Advanced Law Lexicon, 3rd Edition, 2005—Use.—The Random House of Dictionary defines the word ―use‖ as ―to employ for some purpose‖ ―put into service‖ ―making use of‖. In the Oxford Dictionary, the word ―use‖ has been defined as ―using‖ ―employment‖ ―application to a purpose‖ ―availability‖ ―utility‖ ―purpose for which things can be used‖ as cited in Ravi Shankar Sharma v. State of Rajasthan.16 The word ―use‖ in its wider sense would include any such contingency of applying the goods imported for any purpose and would also include putting the goods to any use—truck brought into the area being used for the business of hire or offered for transport.17 [Maharashtra Municipalities Act (40 of 1965), S. 105] Some of the relevant judgments in context of statutes like Income Tax Act, 1961 and IPC involving judicial interpretation of the term ―use‖ have been quoted below: In Varuna Sulphonators v. Union of India18, it has been observed that the words “used” and “consumed” are not identical and synonymous. The verb ―use‖ means to put to some purpose, to avail oneself of; to resort to; to make use of. The word ―consume‖ means to destroy by wasting, fire, evaporation, to devour, to waste or spend, to exhaust (Chambers English Dictionary). The word ―used‖ does not indicate that a thing, which is liquid, can be said to be used only when it is spent up to the last drop. The word ―consumed‖ may be used in the sense that a thing which is consumed must be finished, exhausted or devoured in full, but that is not the sense in which the word ―used‖ is used. In Chandra Nath v. Emperor19, the word ―use‖ as found in Section 397, IPC is rather wide. It cannot be said that a person does not use a revolver unless he fires it. In E.P.W. DA Costa v. Union of India20, in order to qualify for a deduction under Section 80-O of the Income Tax Act, 1961, the royalty etc., received by an Indian company from the foreign enterprises must be in consideration for supply of information for use outside India, and the information must concern industrial, commercial or scientific knowledge, experience or skill. The word “use” is a very general word. It is not necessary that the use to which the information is to be put must be practical, that is to say, it must result in the manufacturing or making of some concrete thing. The foreign enterprises can be said to use the information when it formulates or modifies its broadcasting programmes to India according to the guidance given to the BBC by the said information. On a combined reading of above definitions and judgments, it appears that the term ―used‖ not only relates to actual consumption of the given thing, it also refers to possession of something for being used and also refers to its beneficial use. Some of the judgments issued in context of Export of Services Rules, 2005 relating to interpretation of expression “use of service outside India” Over the period of time, this expression has been contented a lot as this provides for the most significant criteria to constitute a service as export service. In this context, some of the judicial interpretations support the view that where beneficiary of a service is located outside India, the service would said to be used outside India, however, the other view is that it is the location of 15. 16. 17. 18. 19. 20.

AIR 1937 Bom 493. AIR 1993 Raj 117, 125. Washim Municipal Council v. Chaganlal, AIR 1983 Bom 437, 442. (1993) 68 ELT 42. AIR 1932 Oudh 103. (1980) 121 ITR 751 (Delhi).

physical use/consumption of a service, which determines its place of use, thus as per this view, if a service is used/consumed in India, it would be considered as used in India regardless of the fact that the beneficiary of the service is located outside India. In Blue Star Ltd. v. CCE21, the orders were booked in India by the appellant for the goods of the foreign suppliers. After the orders were booked, the parties concerned directly got in touch with the foreign suppliers. When the foreign suppliers exported the goods to India and received their payments, a commission was paid to the appellant for booking of orders. It was held that the services rendered were provided from India and used outside India and amounted to export in terms of Rule 3(2) of the Export of Services Rules, 2005. In ABS India Ltd. v. CST22, service tax was paid for Business Auxiliary Services of marketing of products manufactured by subsidiary located abroad. It was held that booking of order in India is not indicative of rendering of services in India, service not to be considered as delivered in India when recipient is located abroad. Accordingly, exemption under Export of Services Rules, 2005 admissible. In TNT India (P) Ltd. v. CST23, it was held that in regard to performance based taxable services, the services will qualify as exports regardless of the location of the service provider or the service recipient as long as these services are at least partially performed outside India. Clarification issued by the Department vide CBEC Circular No. 111/05/2009, dated 24-022009 Recently, the Government has come out with a very clear view on the interpretation of the expression ―use of service outside India‖ putting an end to all controversies in this regard. The abovementioned circular clarified that to determine the criteria of ―use of service outside India‖, the relevant factor is the location of the service receiver and not the place of performance. The circular states that, ―It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within a legislation. Keeping this principle in view, the meaning of the term ―used outside India‖ has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of Rule 3. For example, under Architect Service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase ―used outside India‖ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)] services as well.‖ Thus the above circular supposedly put an end to a long drawn controversy as to interpretation of the expression ―service used outside India‖. It is relevant to note here that in the case of Microsoft Corpn. (I) (P) Ltd. v. CST, Delhi24, and the court did not accept interpretation taken by this circular. In this case, a subsidiary of Microsoft Corporation (P) Ltd, Singapore was appointed to provide various technical support services including marketing of Microsoft products in India (and other countries designated as part of the ―territory‖ as defined in the agreement) by the Singapore entity. The types of services to be provided by the Indian entity was broadly classified into four categories viz., Product Support Services & Consulting Services, marketing of Microsoft products, 21. 22. 23. 24.

(2008) 11 STR 23 (Tri.-Bang.). (2009) 13 STR 65 (Tri.-Bang.). (2007) 7 STR 142. 2009-TIOL-1325-CESTAT-DEL

resident guest employee services and other inter-company services. The assessee claimed that their services, predominantly classifiable under the taxable service category of ―Business Auxiliary Service‖ have to be regarded as exports in terms of Export of Services Rules, 2005 inasmuch as the Singapore entity was the ultimate beneficiary of the services rendered by the assessee in India. The Tribunal did not accepted this view and ordered for pre-deposit. However in a recent case of Muthoot Fin Corp Ltd v CCE25, the Tribunal, relying on the CBEC Circular of Feb 2009, held that money transfer services rendered to a foreign company by a sub-agent appointed by an agent of the said foreign company qualify as exports irrespective of the fact that all the relevant activities have taken place in India. Now, finally, the Government has modified the Export Rules w.e.f. 27-02-2010 to remove the condition of use of service outside India thereby ending all the conflicts and disputes in this regard. 3. Receipt of consideration in convertible foreign currency One of the essential conditions for the services to qualify as export is receipt of consideration in terms of convertible foreign currency. Some of the judicial precedents in relation to the issue are discussed below: In ETA Travel Agency (P) Ltd. v. CCE26, it was held that receipt of consideration by the way of credit note issued in Indian currency, for services provided by an agent in India to an overseas entity, would not be considered as receipt in India of convertible foreign exchange and hence not eligible for exemption from tax for the relevant period. In National Engg. Ind. Ltd. v. CCE Jaipur27, it was held that the commission received by appellant from General Motors through Indian Railways in Indian Rupees in lieu of foreign exchange as less foreign exchange was released, would merit qualifying the export condition of receipt of money in foreign exchange. The Court observed that the machinery of a statue should be interpreted so as to promote the object and purpose of the scheme. 4. Export Benefits In terms of Export of Services Rules, 2005 effective from 15-03-2005, any taxable service may be exported without payment of service tax. Thus, no service tax is payable when services are exported. In case any service has been exported after payment of service tax, there is a provision for claiming back the service tax so paid as rebate under the said rules. Apart from availing the benefit of service tax exemption, an exporter of services is eligible to claim, (1) Rebate of service tax paid on export of services, if exporter happens to pay service tax (available under Export Rules). (2) Rebate of service tax/excise duty paid on input services or input goods used in provision of export services (available under Export Rules). (3) Refund of service tax/excise duty paid on input services or input goods used in provision of export services (available under CENVAT Credit Rules). (4) Refund of service tax paid on specified input services used by a merchant exporter or manufacturer exporter of goods. (5) Exemption to manufacturer exporters and merchant exporters from payment of service tax on input services of GTA and Commission agent where the services are provided from outside India for sale of goods outside India subject to conditions. It is relevant to note here that the above export benefits are available to the exporters of ta xable services and manufacturer-exporters of goods. In the year 2007, the Government has 28granted 25. (2009) 23 STT 475 26. (2007) 7 STR 454. 27. 2008-TIOL-939-CESTAT-DEL. 28. Vide Notification No. 41/2007-ST, dated 06-10-2007 (effective from 06-10-2007 to 06-07-2009); Notification No. 17/2009-ST, dated 07-07-2009 (effective from 07-07-2009).

the benefit of refund of service taxes paid on specified input services by the merchant exporters as well as manufacturer-exporters. (1) Rebate of Service Tax paid on Export Service As discussed above, service provider need not pay service tax on the output service if such service is exported out of India. However, in case output service is exported after payment of service tax, a rebate (refund) can be claimed for the amount of service tax and education cess paid thereon. The Central Government has issued Notification No. 11/2005-ST, dated 19-04-2005 outlining the conditions, limitations and procedures subject to which rebate of the whole of the service tax and education cess paid on all taxable services exported, shall be granted. This is explained below: The rebate is available subject to following conditions: Following conditions are prescribed by Notification No. 11/2005-ST, dated 19-04-2005: (i) The export must be made to any country other than Nepal and Bhutan. (ii) The taxable services must have been exported in terms of Rule 3 of the Rules i.e. the exported services must conform to the definition of export. (iii) Payment for taxable services must be received in India in convertible foreign exchange. (iv) Service tax and cess in respect of which rebate is claimed must have been paid on the taxable services so exported. (v) Minimum amount of rebate of service tax and cess admissible must be Rupees five hundred or more. Procedure for claiming the rebate: The Central Government has prescribed the following procedure to avail rebate of service tax paid by the service provider for the services exported: Prescribed Form: Form ASTR-129 has been prescribed for claiming rebate of service tax and cess. It shall be filed with the Jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise. Enclosures with the Form: Following documents are required to accompany the Claim Form: (i) Documentary evidence indicating the receipt of payment against taxable service exported; (ii) Documentary evidence showing payment of service tax and cess on such taxable service exported; (iii) Declaration that the taxable services have been exported in terms of Rule 3 of the Export of Service Rules, 2005, along with documents evidencing export of such taxable services. Sanctioning of rebate: On being satisfied that the claim for rebate is in order, the jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise, as the case may be, shall sanction the rebate. It is not necessary that the rebate shall be sanctioned in full but it may be sanctioned for the part amount also. Recovery of rebate with interest if availed wrongly: In case it is discovered that the service provider has not paid service tax and cess or has not exported taxable services, in respect of which rebate has been claimed, the rebate paid to him shall be recoverable with interest. The rate of interest chargeable at present is 13% p.a.30. The recovery shall be effected in terms of Section 73 and Section 75 of the Act. (2) Rebate of Excise Duty and Service Tax paid on Input Goods and Services used for Export of Service An exporter of services may use input goods or services in order to provide the services to be exported. The Central Government has issued Notification No. 12/2005-ST, dated 19-04-2005, allowing an exporter of services to avail rebate on any duty or service tax or cess he has paid on 29. For text of the Form, refer Part E—Appendix I. 30. Vide Notification No. 26/2004-ST, dated 10-09-2004.

the inputs or input services utilised by him in providing services for export. This Notification provides the conditions, limitations and procedures subject to which such rebate shall be admissible. This is explained below: This rebate is available subject to the following conditions: Following conditions are prescribed by Notification No. 12/2005-ST, dated 19-04-2005: (i) The export must be made to any country other than Nepal and Bhutan. (ii) The taxable services must have been exported in terms of Rule 3 of the Rules, i.e., the exported services must conform to the definition of export. (iii) Payment for taxable services must be received in India in convertible foreign exchange. (iv) Excise duty, in respect of which rebate is claimed, must have been paid on the inputs. (v) Service tax and cess in respect of which rebate is claimed must have been paid on the input services. (vi) Minimum amount of rebate of duty, service tax and cess admissible must be Rupees five hundred or more. (vii) The service provider must not have availed CENVAT credit on inputs and input services on which rebate has been claimed. Procedure for Claiming Rebate: The Central Government has prescribed the following procedure to avail rebate of service tax or duty paid by the service provider for the inputs/input services: Filing of Declaration: The service provider, prior to the date of export of taxable service, has to file a declaration with the jurisdictional AC/DC of Central Excise, describing the taxable service intended to be exported. The declaration will also provide: (i) description, quantity, value, rate of duty and the amount of duty payable on inputs actually required to be used in providing taxable service to be exported; and (ii) description, value and the amount of service tax and cess payable on input services actually required to be used in providing taxable service to be exported. Verification of Declaration: The AC/DC shall verify the correctness of the declaration so filed by the service provider. For verification of declaration he may, if necessary, call for any relevant information or samples of inputs and if after such verification, he is satisfied that there is no likelihood of evasion of duty/service tax and cess, he may accept the declaration. Bills etc. are required for Input goods and Input Services on which rebate has to be claimed: (i) The inputs goods on which service tax rebate has to be claimed, should have been obtained directly from a registered factory or from a dealer registered for the purposes of the CENVAT Credit Rules, 2004. The procurement should be accompanied by invoices issued under the Central Excise Rules, 2002; (ii) The inputs services31 on which service tax rebate has to be claimed should be received under an invoice, a bill or, a challan issued under the provisions of Service Tax Rules, 1994. Prescribed Form for preferring Claim for Rebate: Form ASTR-232 has been prescribed for claiming rebate of duty paid on inputs and service tax cess paid on input services. It shall be filed with the Jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise, after the taxable service has been exported. Enclosures with the Form: Following documents are required to accompany the Claim Form: (i) Invoices for inputs33 and also invoice, bill, or challan for input services 34 in respect of which rebate is claimed; (ii) Documentary evidence indicating the receipt of payment against taxable service exported; 31. For the purposes of claiming rebate, input service has the same meaning as is ascribed to it under CENVAT Credit Rules, 2004. Further, it is only such input services as are used in the provision of export services for which rebate can be claimed. 32. For text of the Form, refer Part E—Appendix I. 33. As issued under Central Excise Rules, 2002. 34. As issued under Service Tax Rules, 1994.

(iii) Documentary evidence showing payment of duty on inputs and service tax and cess on input services used for providing such taxable service exported; (iv) Declaration that the taxable services have been exported in terms of Rule 3 of the Export of Service Rules, 2005, along with documents evidencing export of such taxable services. Sanctioning of Rebate: Having regard to the declaration made by the service provider and on being satisfied that the claim for rebate is in order, the jurisdictional AC/DC of Central Excise, shall sanction the rebate. It is not necessary that the rebate shall be sanctioned in full but it may be sanctioned for the part amount also. Recovery of Rebate with Interest in case it is wrongly availed: In case it is discovered that the service provider has not paid duty on inputs or service tax and cess on input services or has not exported taxable services, in respect of which rebate has been claimed, or he has availed the CENVAT credit on such inputs and input services, the rebate paid to him shall be recoverable with interest. The rate of interest chargeable at present is 13% p.a.35 The recovery shall be affected in terms of Section 73 and Section 75 of the Act. (3) Refund of CENVAT credit for the inputs or input services used for goods or services exported Rule 5 of the CENVAT Credit Rules, 2004, as substituted 36 with effect from 14-03-2006, provides for the utilisation and refund of CENVAT credit in respect of inputs or input services used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported. For detailed discussion on the conditions, under which such CENVAT credit referred above can be utilised or refunded, please refer Part B— Chapter 6. It may be noted that practically rebate of input taxes under the Export Rules and refund of input taxes under the CENVAT Credit Rules provide the same benefit, thus, these provisions can be used in alternate. (4) Refund of service tax paid on specified input services to the merchant exporters and manufacturer exporters of goods The above benefit was initially provided vide Notification No. 41/2007-ST, dated 06-10-2007, for specified services. Over the period of time, the Government kept adding services eligible for benefit under this notification. On 07-07-2009, the Government superseded this notification by another Notification No. 17/2009-ST, continuing with the benefits for all the services covered under the erstwhile notification with lesser conditions and simpler procedures to comply with. In the following discussion, benefits under both the notifications have been discussed separately with related conditions and procedures. Refund under Notification No. 41/2007-ST The 37Notification No. 41/2007-ST, dated 06-10-2007 allows exemption (by way of refund) of service tax paid on specified services used for export of goods by a merchant exporter or a manufacturer exporter (i.e. any exporter of goods). The refund is subject to condition that the exporter claiming the exemption has already paid the service tax on the specified services. Further, where a manufacturer-exporter claims refund under the Notification No. 41/2007-ST, he cannot claim refund for the same input services under CENVAT Credit Rules, 2004. Also, the benefit under Notification No. 41/2007-ST is available only when the goods have been exported by the exporter without availing drawback of service tax paid on the specified services under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.

35. Vide Notification No. 26/2004-ST, dated 10-09-2004. 36. Vide Notification No. 4/2006-CE(NT), dated 14-03-2006. 37. This Notification supersedes Notification No. 40/2007-ST, dated 17-09-2007 which initially provided the same refund mechanism for three specified input services.

Specified input services for which refund of service tax can be claimed under the above notification and the respective conditions for refund, wherever prescribed, are as under: 1. Port services and Other Port services in relation to export goods (Above services are eligible for refund vide Notification No. 40/2007-ST, dated 17-092007, w.e.f. 17-09-2007) 2. General insurance services in relation to insurance of export goods—Document issued by the insurer, including re-insurer, for payment of insurance premium should be specific to export goods and be in the name of the exporter. 3. Services in relation to technical testing and analysis of export goods—The exporter furnishes a copy of the written agreement entered into with the buyer of the said goods requiring testing and analysis of the said goods and the invoice issued by the service provider is specific to export goods and be in the name of the exporter. Further, where the buyer of the said goods does not require testing and analysis of the said goods, but testing is statutorily stipulated by domestic rules and regulations, the exporter shall furnish copy of such rules or regulations stipulating testing and analysis of the said goods. 4. Services in relation to inspection and certification of export goods—The exporter furnishes a copy of the written agreement entered into with the buyer of the said goods requiring inspection and certification of the said goods; and the invoice issued by the service provider shall be specific to export goods and shall be in the name of the exporter. (Above services are eligible for refund vide Notification No. 41/2007-ST, dated 06-102007, w.e.f. 06-10-2007) 5. Specialised cleaning services namely disinfecting, exterminating, sterilising or fumigating of containers used for export of said goods provided to an exporter—The exporter furnishes a copy of the written agreement entered into with the buyer of the said goods requiring such specialised cleaning of containers used for export of said goods; and the service provider is accredited by the competent statutory authority to provide such specialised cleaning services. 6. Services provided for storage and warehousing of said goods—The said goods are stored in a storage or warehouse which is approved by the competent authority and the storage or warehouse is exclusively used for the purpose of storage or warehousing of export goods. (Above services are eligible for refund vide amending Notification No. 42/2007-ST, dated 29-11-2007, w.e.f. 29-11-2007) 7. Services provided by a courier agency to an exporter to a destination outside India— The receipt issued by the courier agency specifies the importer-exporter (IEC) code number of the exporter, export invoice number, nature of courier, destination of the courier including name and address of the recipient of the courier, and the exporter produces evidence to link the use of courier service to export goods. (Above services are eligible for refund vide Notification No. 3/2008-ST, dated 19-022008, w.e.f. 19-02-2008) . 8. GTA services from the place of removal to inland container depot or to the port of export—(i) Export goods are transported directly from the place of removal to inland container depot or port or airport, as the case may be, from where the goods are exported; (ii) invoice issued by the exporter in relation to export goods shall indicate the name of the inland container depot or port or airport from where the goods are exported; (iii) details of exporter‘s invoice relating to export goods are specifically mentioned in the lorry receipt and the corresponding shipping bill; (iv) exporter shall declare in the refund claim indicating whether such service has been received from the said service provider for purposes other than for export. (GTA services from inland container depot to port of export were eligible for refund since 17-09-2007 initially vide Notification No. 40/2007-ST, and later vide Notification

9.

10.

11.

12.

13.

14.

No. 41/2007-ST, dated 06-10-2007. The coverage from exemption was extended to GTA services from place of removal to inland container depot vide Notification No. 3/2008ST, dated 19-02-2008). Rail transport services from the place of removal to the inland container depot or to the port of export—(i) Export goods are transported directly from place of removal to inland container depot or port or airport from where the goods are exported; (ii) invoice issued by the exporter in relation to export goods shall indicate the inland container depot or port or airport from where the goods are exported; (iii) details of exporter‘s invoice relating to export goods are specifically mentioned in the lorry receipt and the corresponding shipping bill; (iv) exporter shall declare in the refund claim indicating whether such service has been received from the said service provider for purposes other than for export. (Rail transport services from inland container depot to port of export were eligible for refund since 17-09-2007) (Rail transport services from inland container depot to port of export were eligible for refund since 17-09-2007 initially vide Notification No. 40/2007-ST, and later vide Notification No. 41/2007-ST, dated 06-10-2007. The coverage from exemption was extended to rail transport services from place of removal to inland container depot vide Notification No. 3/2008-ST, dated 19-02-2008). Custom house agent services in relation export goods—Exporter shall produce; (i) invoice specifying number and date of shipping bill, description of export goods, number and date of the invoice issued by the exporter relating to export goods, and details of all the charges, whether or not reimbursable, collected by the custom house agent from the exporter in relation to export goods; (ii) details of other taxable services provided by the said custom house agent and received by the exporter, whether or not relatable to export goods. Banking and other financial services provided in relation to collection of export bills, and export letters of credit such as advising commission, advising amendment, confirmation charges—Exporter shall produce evidence to link the use of services for goods exported. Business auxiliary services provided by a commission agent, located outside India to cause sale of goods exported by him—(i) Exporter shall provide relevant agreement or contract or any other document evidencing the arrangement; (ii) exporter shall declare the amount of commission paid or payable to the commission agent in the shipping bill; (iii) commission sought to be remitted is not on export of a canalised item, project exports, or exports financed under lines of credit extended by Government of India or EXIM Bank, or exports made by Indian partners towards equity participation in an overseas joint venture or wholly owned subsidiary; (iv) documents evidencing actual export of goods; (v) documents evidencing actual payment of commission to the commission agent; (vi) refund of service tax shall be restricted to actual amount of service tax paid or service tax calculated on ten38 per cent of FOB value of export goods, whichever is less. (Above services are eligible for refund vide amending Notification No. 17/2008-ST, dated 01-03-2008, w.e.f. 01-04-2008) Banking and other financial services and Foreign exchange broking services of purchase or sale of foreign currency, including money changing provided to an exporter in relation to export goods—Exporter shall produce evidence to prove that the services are in relation to goods exported. Supply of tangible goods for use services provided in relation to goods exported by the exporter—Exporter shall produce evidence to prove that the services are in relation to goods exported. (Above services are eligible for refund vide amending Notification No. 24/2008-ST, dated 10-05-2008, w.e.f. 16-05-2008)

38. Replaced for “two” vide Notification No. 33/2008-ST, dated 07-12-2008.

15. Clearing and Forwarding Agent Services in relation to goods exported by the exporter—Exporter shall produce—(i) invoice issued by clearing and forwarding agent for providing services specifying number and date of shipping bill and description of export goods, etc. (ii) details of other taxable services provided by the said CNS agent. (Above services are eligible for refund vide amending Notification No. 33/2008-ST, dated 07-12-2008, w.e.f. 07-12-2008) Note: Notification No. 43/2007-ST, dated 29-11-2007 provides a similar exemption by way of refund, in relation to business exhibition of goods by the organiser of business exhibition to a manufacturer of goods falling under Chapters 57, 61, 62 and 63 of the Central Excise Tariff Act, 1985. This exemption, though similar to that given under Notification No. 41/2007-ST, is governed by Notification No. 43/2007-ST only. Procedure to claim refund for the services covered under Notification No. 41/2007-ST will be governed by the provisions of this notification, as discussed below: Filing of claim with the appropriate authority: The manufacturer-exporter of the goods shall file the claim for refund to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture or warehouse. The Merchant-exporter, shall file the claim for refund to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the registered office or the head office, as the case may be, of such exporter. The merchant exporter, being not registered with the jurisdictional authority, shall, prior to filing a claim for refund of service tax under this notification, file a declaration in the Form annexed with Notification No. 41/2007-ST (reproduced below) with the respective jurisdictional authority. The jurisdictional authority, shall, after due verification, allot a service tax code (STC) number to the exporter within seven days from the date of receipt of the said Form. However, in cases, where a premises or an office of a merchant exporter is registered with the department under service tax law, the merchant exporter can, at his option, file refund claim with the jurisdictional office, he is registered with. Even in such cases, if the merchant exporter so desires, he may file refund claim at the location where his head office/registered office is located. [CBEC Circular No. 101/4/2008, dated 12-05-2008] Form for filing of refund and the documents to be enclosed therewith: Refund claim is to be filed in the form prescribed under Notification No. 41/2007-ST. It is to be accompanied by documents evidencing,— (i) export of the said goods; (ii) payment of service tax on the specified services for which claim for refund of service tax paid is filed; (iii) wherever applicable, a copy of the written agreement entered into by the exporter with the buyer of the said goods, as the case may be. Time limit for filing of refund claim: The claim for refund is to be filed on a quarterly basis, within [six months]39 from the end of the relevant quarter during which the said goods have been exported. Further, the said goods shall be deemed to have been exported on the date on which the proper officer of Customs makes an order permitting clearance and loading of the said goods for exportation under Section 51 of the Customs Act, 1962 . Grant of refund: The Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, shall, after satisfying himself that the said services have been actually used for export of said goods, refund the service tax paid on the specified services used for export of said goods. In this regard, CBEC Instruction Letter (F. No. 341/15/2007-TRU), dated 17-04-2008, states that Board desires that refund of service tax paid on taxable services used by exporters for export goods should be disposed of expediti -ously. The refund claims should be finalised within a maximum period of 30 days from the date of filing of refund claim. 39. Replaced for “sixty days” vide Notification No. 32/2008-ST, dated 18-11-2008.

Commissioners are advised to put in place a system of review and monitoring the disposal of refund claims filed by the exporters. The letter further states that details of refund claims which are not disposed of within 45 days from the date of filing, for whatsoever reasons, should be sent by the Commissioner to Member (Service Tax). Recovery of amount refunded erroneously: Where any refund of service tax paid on specified services used for export of said goods has been paid to an exporter but the sale proceeds in respect of the said goods have not been realised by or on behalf of the exporter in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, such service tax refunded shall be recoverable under the provisions of the said Finance Act and the rules made thereunder, as if it is a recovery of service tax erroneously refunded. Clarifications issued by the Government in relation to refund under Notification No. 41/2007-ST, dated 06-10-2007 CBEC Circular No. 101/4/2008-ST, dated 12-05-2008 It is clarified that in cases, where a premises or an office of a merchant exporter is registered with the department under service tax law, the merchant exporter can, at his option, file refund claim with the jurisdictional office, he is registered with. Therefore, it is clarified that refund claims can be filed from any premises/office of a merchant exporter provided the same is registered for service tax purposes under the Finance Act, 1994 or rules made thereunder. However, even in such cases, if the merchant exporter so desires, he may file refund claim at the location where his head office/registered office is located, in the manner as prescribed in the above circular. CBEC Circular No. 106/9/2008-ST, dated 11-12-2008 Issue I: The issue raised by some of the exclusive Central Excise Commissionerates is that they do not have access to the System for Allotment of Service Tax Payer Code (SAPS). Hence, exclusive Central Excise Commissionerates in places like Delhi and Bangalore have not been able to process the refund claims filed by the manufacturer exporter not registered with central excise. Clarification: The Directorate of Systems has reported that there is no restriction for exclusive Central Excise Commissionerates in having access to SAPS. Therefore, exclusive Central Excise Commissionerates, not having access to SAPS at the moment, may approach the Directorate of Systems to get the access to the centralised software. Issue II: One of the conditions of the notification is that the exporter claiming exemption has actually paid the service tax on the specified services [para 1(c) of the notification]. The other condition is that the refund claim shall be accompanied by document evidencing payment of service tax [para 2(f)(ii) of the notification]. In this regard the following issues have been raised. (i) Whether the invoices/bills/challan issued by the service provider, showing service tax amount could be treated as evidence that the exporter has paid the service tax. (ii) The invoices produced by the exporters are at times not complete (i.e. does not have STC code of service provider) (iii) One to one correlation between payment of Service Tax and invoice is difficult in many cases. Clarification: The invoices/challans/bills issued by supplier of taxable service, in conformity with Rule 4A of the Service Tax Rules, 1994, are reasonable evidence that the services on which refund is being sought are taxable. The compliance of condition that exporter has actually paid the service tax rests with the exporter claiming refund. Therefore, insofar as this condition is concerned, the refund claim should be processed based on furnishing of appropriate invoices/bills/challan by the person claiming refund and undertaking to the effect of payment of service tax by him. For the purposes of compliance verification, random checks should be carried out independently and where the refund amount is significant, post refund audit may also be carried out. As regards incomplete invoices/bills etc. Rule 4A of the Service Tax Rules, 1994 prescribes the statutory requirement. Compliance of this rule requires that the invoices/challan/bills should be

complete in all respect. Therefore, the exporter claiming refund of service tax under Notification No. 41/2007-ST should ensure in their own interest that invoices/bills/challan should contain requisite details (name, address and registration No. of service provider, S. No. and date of invoice, name and address of service receiver, description, classification and value of taxable service and the service tax payable thereon). Refund claim cannot be allowed on the basis of invoices not having complete details as required verification cannot be carried out by the department on the basis of incomplete invoices. The Board has further decided that simplified procedure for refund, as prescribed by the Board vide Circular No. 828/5/2006-CX dated 20-04-2006 for sanction of refund/rebate of unutilised CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004/rebate would mutatis mutandis apply to refund claims under Notification No. 41/2007-ST. Under this simplified procedure, 80% of the due refund amount is sanctioned as ad hoc interim refund to specified category of exporters having good track record, within 15 days of filing of a refund claim, subject to the condition that refund claim is complete and contains the requisite documents. For this purpose, the specified category of exporters would be (i) all exporters having export turnover of more than Rs 5 crore in the current or preceding financial year; (ii) PSUs including PSUs of State Governments; (iii) Star Export Houses as specified under Chapter 3.5 of the Foreign Trade Policy, 2004-2009; (iv) manufacturer-exporters registered with central excise who have been exporting during the previous two financial years and have minimum export of Rs 1 crore or more during the preceding financial year; (v) exporters registered with service tax or central excise who have paid central excise duty and/or service tax amounting to Rs 1 crore or more during the preceding financial year; (vi) All Export Oriented Units. CBEC Circular No. 106/9/2008-ST, dated 11-12-2008 Issue I: Notification No. 41/07-ST has been amended by Notification Nos. 32/2008-ST, dated 18-11-2008 and 33/2008-ST, dated 07-12-2008 to (i) extend the limitation period from 60 days from the end of quarter to six month; (ii) to omit the condition of non-availment of drawback. Whether, in view of amended conditions, refund for the quarter Mar-Jun 2008 would be allowed to be filed till December 2008? Clarification: It is clarified that consequent upon revision of limitation period, any refund claim that is filed within such revised limitation period would be admissible if it is otherwise in order. Therefore, refund claims of service tax on specified taxable services used for exports of goods made in the quarter Mar-Jun 2008 could be filed till 31st Dec 2008. Issue II: The bank deducts certain commissions from the export remittance in lieu of service provided by them. Refund is not allowed on such deduction. Refund should be allowed on the gross remittances. Clarification: Refund is admissible on the basis of gross amount received for the exports and deductions made by the banks from export remittances, in lieu of services provided by bank, should not be deducted while granting refund. Issue III: For exporters exporting to a customer regularly, the foreign exchange remittance certificates (FIRC) are made on running account basis by the banks. Therefore, it is often not possible to show the linkage between the export invoice and the remittance. This has resulted in denial of refund. Further in case where payments are received by cheque, banks do not issue FIRC and refunds are denied. Clarification: In such cases where FIRCs are issued on consolidated basis, the exporters should submit self-certified statement along with FIRC showing the details of export in respect of which the FIRC pertains. Refunds should be allowed on such certified statements. However, exporters should maintain a register showing running account which should be reconciled between the export and the remittance periodically. In cases where banks do not issue FIRC for the reason that payments are received by cheque, refund may be allowed on the basis of duly certified bank statement. Issue IV: Whether the limitation period of six months would be counted from the date of exports or from the date of receipt of remittances. Clarification: It is clearly prescribed in the notification that limitation period of six month is to be computed from the date of exports.

Issue V: Whether refund would be admissible on specified taxable service received prior to the date it is notified in the said notification, if such services are used in relation to goods which are exported subsequent to the date on which such taxable services are notified under Notification No. 41/2007-ST. Clarification: Being prospective in nature refund is not admissible on such services received prior to the date they are notified in the said notification, even if the goods, in relation to which these services are used, are exported after the date when such services are notified under Notification No. 41/2007-ST. Issue VI: Authorities granting refund are insisting on original documents such as invoice, BL, SB, BRC etc. Such documents are required under the law to be kept in the Head Office for audit. Refunds are denied on this ground. Clarification: Normally certified copy of the documents should be accepted. Only in case of indepth enquiry original documents can be verified. Issue VII: The service provider providing services to the exporter provides various services. But he has registration of only one service. The refund is being denied on the grounds that the taxable services that are not covered under the registration are not eligible for such refunds. Clarification: Notification No. 41/2007-ST provides exemption by way of refund from specified taxable services used for export of goods. Granting refund to exporters, on taxable services that he receives and uses for export do not require verification of registration certificate of the supplier of service. Therefore, refund should be granted in such cases, if otherwise in order. The procedural violations by the service provider need to be dealt separately, independent of the process of refund. Issue VIII: Whether refunds under Notification No. 41/2007-ST, dated 06-10-2007 would be admissible for the quarter July-September 2007. Clarification: Notification No. 41/2007-ST exempts service tax on specified taxable services used for export of goods. This exemption is operated through the route of refund. Being prospective in nature, refund could only be sanctioned on taxable services provided on or after the date they are notified in the said notification, i.e., 06-10-2007. FORM OF REFUND APPLICATION For merchant exporters and manufacturer-exporters of goods [Under Notification No. 41/2007-ST, dated 06-10-2007] 1. Name of the exporter : 2. Address of the registered office or head office of the exporter: 3. Permanent Account Number (PAN) of the exporter: 4. Import Export Code (IEC) of the exporter: 5. Details of Bank Account of the exporter: (a) Name of the Bank: (b) Name of the Branch: (c) Account Number: 6. (a) Constitution of exporter [Proprietorship /Partnership /Registered Private Limited Company /Registered Public Limited Company /Others (specify)] (b) Name, address and telephone number of proprietor /partner /director 7. Description of export goods: S. Description of goods Classification in case of excisable goods No. (1) (2) (3) 8. Description of taxable services received by the exporter for use in export goods

S. Description of taxable service No. (1) (2)

Classification under the Finance Act, 1994 (3)

9. Name, designation and address of the authorised signatory / signatories: 10. I/We hereby declare that— (i) the information given in this application form is true, correct and complete in every respect and that I am authorised to sign on behalf of the exporter; (ii) no CENVAT credit of service tax paid on the specified services used for export of said goods shall be taken under the CENVAT Credit Rules, 2004; (iii) the said goods shall be exported without availing drawback of service tax paid on the specified services under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995; (iv) I/we shall maintain records pertaining to export goods and the taxable services used for export of the said goods and shall make available, at the declared premises, at all reasonable time, such records for inspection and examination by the Central Excise Officer authorised in writing by the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be. Notification No. 41/2007-ST, dated 06-10-2007 has now been superseded vide Notification No. 17/2009-ST, dated 07-07-2009 effective from the same date. Thus, the above procedures would apply accordingly in context of the refund pertaining to the period prior to 07-07-2009. Refund under Notification No. 17/2009-ST This notification replaces earlier Notification No. 41/2007-ST and aims to provide exemption through refund of tax paid on specified services on certification basis. Availability: The exemption would be available to the— (1) Specified services mentioned in the notification—the services are same as were covered under Notification No. 41/2007-ST except specified service of commission agent (on which exemption is now available under Notification No. 18/2009-ST, dated 07-072009. Service of ―terminal handling‖ has been added in the existing list of taxable services. (2) Exporters of goods who are registered with the Export Promotion Councils Exporters and having import export code; (3) Exporters of goods who have paid the value of taxable service received including the service tax thereon to the provider of taxable service and they have not claimed CENVAT credit on such service tax paid; (4) Claim of refund which is for Rs 500 or more. Procedure (1) An exporter, who is not a manufacturer-exporter and is not registered with the department, shall first file a declaration in Form A-240 (annexed to the notification) for obtaining a service tax code from the Office of AC/DC Central Excise under whose jurisdiction the registered/head office of the exporter falls. Such code will be given within 7 days from the date of receipt of the Form A-2; (2) The refund claim should be filed in Form A-141 (annexed to the notification) within one year from the date of export of goods. The exporter has the choice to file separate refund claim for individual exports (i.e. one shipping bill/bill of export) or he can bunch the documents relating to several exports and file them together; (3) The following documents should be filed along with the claim: (i) Self-attested copies of shipping bill/bill of exports pertaining to the exports in respect of which the refund(s) has/have been claimed; 40. Please refer Appendix I of Part E of this book for the format of Form A-2. 41. Please refer Appendix I of Part E of this book for the format of Form A-1.

(ii) Self-attested copies of bill of lading/airway bill pertaining to above exports; (iii) The original invoice/bill/challan issued by the provider of taxable service in the name of the exporter showing the description and value of taxable service provided and the service tax payable thereon; (iv) The said original invoice/bill/challan should be certified by in the manner mentioned below; (v) In case the amount of total claim is upto 0.25% of the total declared FOB value of the export under the claim, such certificate will be issued by the exporter or by an authorised person; (vi) In case the amount exceeds the above limit, such certification shall be done by the Chartered Accountant who audits the annual accounts of the exporter under the provisions of the Companies Act, 1956 or the Income Tax Act, 1961; (vii) in either case the pro forma of certification will be as follows: ―It is certified that the services mentioned in this bill/invoice/challan issued in my/our name pertaining to . . . . . . . . . . . . (name of taxable service) has been received by me/us, that I/we have paid the value of the service and the service tax thereon and that the said taxable service has been fully utilised in export of goods covered under shipping bill/airway bill No. . . . . . . . . dated . . . . . . . . . . . .‖ (viii) additional documents required as per the condition laid down as per Column (4) of the Table annexed to the notification. (4) While receiving a claim it must be ensured that the claim is complete in all respects and the required documents have been enclosed properly. In case any default or deficiency is noticed after the claim has been received, the claim can be returned back within 5 working days from the date of its receipt. Beyond that period the claim has to be accepted and processed; (5) The claim would be examined as mentioned in para (3) of the notification and the refund shall be made within one month from the receipt of the claim unless the issue is of the nature mentioned in proviso to the said para (3); (6) The claim should not be subjected to pre-audit irrespective of the amount of claim. (7) The Commissioner in charge should be vigilant and undertake periodic review to ensure that no claim is held up beyond the prescribed time-limit of one month unless there are acceptable reasons for the same. (8) All Chief Commissioners are requested to forward a status report for the zone, separately for each of the notification in the format enclosed. The report should reach the Board latest by the dates mentioned with the formats. (5) Exemption to manufacturer exporters and merchant exporters from payment of service tax The Government has provided for an exemption scheme to exporters of goods for two of such input services used for export of goods, for which they are liable to pay service tax as recipient of service. The object is to do away with the hassle of first paying service tax and then claiming it back as refund as input service tax towards export. The scheme has been notified under Notification No. 18/2009-ST, dated 07-07-2009. Availability: The exemption would be available,— (1) On two taxable services, viz. (i) Transport of Goods by Road from any CFS or ICD to Port/Airport of Exports or from the place of removal (i.e. factory) to CFS, ICD, Port or Airport of Exports. (ii) services provided by a foreign commission agent who causes sale of goods abroad. (2) To exporters of goods who are registered with Export Promotion Councils and are holding import export code number and are also registered with service tax/central excise authorities as they are otherwise required to pay service tax on the above services received, under reverse charge mechanism.

(3) In case of a foreign commission agent, to the extent of tax on commission upto 10% of FOB of export value (i.e. 1% of service tax + applicable cess). In case payment made to agents is in excess of the said limit, service tax on reverse charge basis would have to be paid on the excess amount without any exemption or refund.In this context, it is relevant to mention that a doubt was raised by the assesses regarding the % of the value of commission exempted. While replying to this doubt, the CBEC, vide Circular No. 118/12/2009 – ST, dated 23-11-2009, has clarified that In the context of refund of service tax paid on foreign agency commission, Notification No. 18/2009, dated 07-072009 (in the Table, Sl. No. 2, Condition No. 2) says ―exemption shall be limited to one percent of the Free On Board value of export goods for which the said service has been used‖. This means that amount of service tax paid, which can be refunded to the exporter, is restricted to one percent of the FOB value of export goods in relation to which the taxable service of the foreign agent was used. Procedure: (1) An exporter who desires to avail the exemption must first inform the jurisdictional AC/DC in Form EXP-142 before availing such exemption for the first time, so that the department is in know of such exporters who would be claiming the exemption. It is advised that a running serial number should be allotted during the receipt of the intimation and the same should be mentioned on the intimation letter and receipt thereof. This number should be the identification number of an exporter claiming refund; (2) The exporter should preserve the originals of relevant document issued in his name evidencing provision of taxable service for which exemption has been claimed and should self-certify on the face of such documents— (i) the receipt of services; and (ii) their use in export of goods. While the exporter would avail the exemption on his own, he is required to file a half-yearly return (in form EXP-243 annexed to the notification) to the jurisdictional AC/DC, giving the details of the exports made and the quantum of exemption availed, within 15 days from the end of half-year (for exporters who opt for this exemption immediately on its introduction from 07-072009, first such return would be due on 15th October, 2009). (3) The following documents should be enclosed with the return: (a) Self-attested copies of Shipping Bill/Bill of Exports pertaining to the exports in respect of which the exemption has been claimed; (b) Self-attested copies of bill of lading/airway bill pertaining to above exports; (c) The original invoice/bill/challan issued by the provider of taxable service in the name of the exporter showing the description and value of taxable service provided and the service tax payable thereon; (d) The said original invoice/bill/challan should be self-certified by the exporter or by an authorised person in the following format— ―It is certified that the service mentioned in this bill/invoice/challan issued in my/our name pertaining to . . . . . . . . . . (name of taxable service) has been received by me/us and that the said taxable service has been fully utilised in export of goods covered under shipping bill/airway bill No. . . . . . . . . . . . dated . . . . . . . . .‖ (e) Additional documents required as per the condition laid down as per Column (4) of the Table annexed to the notification; All exporters who opt for the scheme should file their returns. Even in case an exporter does not avail any benefit under this notification during a half year, he should file a nil return prescribed under this notification.

42. Please refer Appendix I of Part E of this book for the format of Form EXP-1. 43. Please refer Appendix I of Part E of this book for the format of Form EXP-2.

5. Notifications issued prior to 15-03-2005 granting exemption to the services earning foreign exchange Prior to coming into force of Export of Service Rules, 2005, a number of notifications (including a CBEC Circular) were issued dealing with the issue of receipts in convertible foreign exchange. Following is a brief summary. S. Notification No. & Effective Particulars No. Circular No. Dates 1. 16-10Notification No. Provided exemption to services rendered for 1998 55/98-ST, overseas projects for which payment received in to dated 07-10-1998 India was in convertible foreign exchange. 27-02(Rescinded vide 1999 Notification No. 5/99ST, dated 28-02-1999) 2. 28-02Notification No. Provided exemption to services rendered to any 1999 2/99-ST, person for which payment received in India was in to dated 28-02-1999 convertible foreign exchange. 08-04(Rescinded vide 1999 Notification No. 6/99ST, dated 09-04-1999) 3. 09-04Notification No. 6/99Provided exemption to services rendered to any 1999 ST, dated 09-04person for whom payment received in India was in to 199944 convertible foreign exchange. This was subject to 28-02the condition that the said amount was not (Rescinded vide 2003 repatriated from or sent out of India. Notification No. 2/2003-ST, dated 01-03-2003) 4. 01-03Clarification issued This Circular clarified that export of services 2003 by CBEC Circular continued to remain tax-free even after withdrawal to No. 56/5/2003, dated of Notification No. 6/99, dated 09-04-1999. 19-1125-04-2003 in view of According to it, ―service tax is destination based 2003 recision of consumption tax‖ and therefore not applicable on Notification export of services. No. 6/99-ST, However, service tax would be leviable on all dated 09-04-1999 taxable services consumed or rendered in India, (This circular has irrespective of whether the payment thereof was been withdrawn w.e.f. received in foreign exchange or not. 10-05-2007 vide Circular No. 93/4/2007-ST, dated 10-05-2007) 5. Notification No. 20-11Provided exemption to services rendered to any 21/2003-ST, dated 2003 person for which payment received in India was in 20-11-2003 to convertible foreign exchange. This was subject to (Rescinded vide 14-03the condition that the said amount was not Notification No. 2005 repatriated from or sent out of India. 10/2005-ST, dated 03-03-2005, w.e.f. 15-03-2005) 6. Meaning of “India” for the purpose of Exports Explanation to Rule 3 of the Export of Services Rules defines the expression India. Recently, the Government has issued Notification No. 6/2010-ST, Effective from 27-02-2010 to redefine 44. This notification was amended twice by Notification Nos. 9/2001-ST, dated 16-07-2001 and 13/2002-ST, dated 01-08-2002 in response to change in the serial number of the corresponding sub-clause.

India to read as “India” includes the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. It may be noted that the definition of ‗India‘ has similarly been modified for the purposes of Taxation of (Services Provided from Outside India and Received in India) Rules, 2006 and also for the purposes of jurisdiction of service tax law vide Notification Nos. 16/2010-ST; and 14/2010-ST respectively, both dated 27-02-2010. Effective from 19-08-2009 the definition of “India” was amended45 to provide that “India‖ includes the installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India. It may be noted that while the definition of ‗India‘ was modified for the purposes of Export Rules w.e.f. 19-08-2009, the similar modification was made for the purposes of Taxation of (Services Provided from Outside India and Received in India) Rules, 2006 and also for the purposes of jurisdiction of service tax law vide Notification Nos. 22/2009-ST; and 21/2009-ST respectively, both dated 07-07-2009. Thus, practically, the definition of India differed in its coverage for the purposes of Export Rules vis-a-vis Import Rules from 07-07-2009 to 18-082009. Prior to 19-08-2009, the definition of India was as follows: “India” included the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications46 of the Government of India in the Ministry of External Affairs Nos. S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September, 1996. A view of the modifications in the above definitions of ‗India‘ over the period of time suggests that the Government has purported to cover more area (territorial and otherwise) under the definition of India with every subsequent change. Annexure The Export of Services Rules, 2005 provides different export criteria for the taxable services covered under different categories as per the said rules. These service categories can be broadly categorised as follows: Category : Services provided in relation to immovable A property Category B : Services where performance is the essence of service Category C : Residuary services (not falling under any of the above categories) A. List of services for which export criteria are based on the location of immovable property S. Relevant Section of the Type of Services No. Finance Act, 1994 1. Architects‘ Services 65(105)(p) 2. Auctioneer‘s Services in relation 65(105)(zzzr) to immovable property 3. Commercial or Industrial 65(105)(zzq) Construction Services 4. Construction of Complex Services 65(105)(zzzh) 5. Dredging Services 65(105)(zzzb) 6. Execution of Works Contract 65(105)(zzzza) Services 7. General Insurance Services in 65(105)(d) 42. Vide Notification No. 25/2009-ST, dated 19-08-2009. 46. For the text of these notifications and details on the territorial jurisdiction of India, refer Part E—Appendix II of this book (Vol. II).

S. No.

Type of Services

Relevant Section of the Finance Act, 1994

relation to immovable property Interior Decorator‘s Services 65(105)(q) Mandap Keeper‘s Services47 65(105)(m) 9. Mining Services 65(105)(zzzy) 10. Real Estate Consultancy Services 65(105)(v) 11. Renting of Immovable Property 65(105)(zzzz) Services 12. Site formation and clearance, 65(105)(zzza) excavation and earthmoving and demolition and similar other services 13. Survey and Map-making Services 65(105)(zzzc) (other than Government Concerns) in relation to immovable property B. List of services for which export criteria are based on the place of performance of such services S. Type of Services Relevant Section No. of the Finance Act, 1994 1. Air Travel Agent‘s Services 65(105)(l) 2. Airport Services 65(105)(zzm) 3. Authorised Service Stations‘ Services 65(105)(zo) 4. Beauty Parlours‘ Services 65(105)(zq) 5. Business Exhibition Services 65(105)(zzo) 6. Cargo Handling Agencies‘ Services 65(105)(zr) 48 7. Chartered Accountants‘ Services 65(105)(s) 8. Cleaning Services 65(105)(zzzd) 9. Clearing & Forwarding Services 65(105)(j) 10. Commercial Training and Coaching 65(105)(zzc) Centres‘ Services 11. Commissioning and Installation 65(105)(zzd) Services (including Erection Services) 12. Commodity Exchange Services 65(105)(zzzzh) 49 13. Company Secretaries‘ Services 65(105)(u) 14. Convention Services 65(105)(zc) 15. Cosmetic and Plastic Surgery Services 65(105)(zzzzk) 50 16. Cost Accountants‘ Services 65(105)(t) 17. Courier Services 65(105)(f) 18. Credit Rating Agencies‘ Services 65(105)(x) 8.

47. Effective from 27-02-2010, Mandap Keeper Services are covered under Category A services. 48. Effective from 27-02-2010, Chartered Account’s Services are covered under Category C services. 49. Effective from 27-02-2010, Company Secretary’s Services are covered under Category C services. 50. Effective from 27-02-2010, Cost Account’s Services are covered under Category C services.

S. No. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51.

Type of Services

Relevant Section of the Finance Act, 1994 Custom House Agent‘s Services 65(105)(h) Dry Cleaning Services 65(105)(zt) Event Management Services 65(105)(zu) Fashion Designing Services 65(105)(zv) Forward Contracting Services 65(105)(zzy) Goods Transport Agencies‘ Services 65(105)(zzp) Health Club and Fitness Centres‘ 65(105)(zw) Services Internet Café Services 65(105)(zzf) Maintenance and Repair Services 65(105)(zzg) 51 Mandap Keeper‘s Services 65(105)(m) Market Research Agencies‘ Services 65(105)(y) Membership of Clubs or Associations 65(105)(zzze) Opinion Poll Agencies‘ Services 65(105)(zzs) Other Port Services 65(105)(zzl) Outdoor Caterers‘ Services 65(105)(zzt) Packaging Services 65(105)(zzzf) Pandal or Shamiana Contractors 65(105)(zzw) Services Photography Services 65(105)(zb) Port Services 65(105)(zn) Processing and Clearinghouse Services 65(105)(zzzzi) Rent-a-Cab Scheme Operator‘s Services 65(105)(o) Security Agencies‘ Services 65(105)(w) Sound Recording Services 65(105)(zj) Steamer Service Agent‘s Services 65(105)(i) Stock Broker‘s Services 65(105)(a) Stock Exchange Services 65(105)(zzzzg) Storage and Warehousing Services 65(105)(zza) Survey and Exploration of Mineral 65(105)(zzv) Services Technical Inspection and Certification 65(105)(zzi) Services Technical Testing & Analysis Services 65(105)(zzh) Tour Operators‘ Services 65(105)(n) Transport of Goods by Air Services 65(105)(zzn) Transport of Goods through Inland 65(105)(zzzzl) Water

51. Effective from 27-02-2010, Mandap Keeper Services are covered under Category A services.

S. No.

Type of Services

Relevant Section of the Finance Act, 1994 52. Transport of Goods in Containers by 65(105)(zzzp) Rail Services 53. Travel Agents‘ Services 65(105)(zzx) 54. Underwriters‘ Services 65(105)(z) 55. Video-tape Production Services 65(105)(zi) C. List of residuary services not covered under List A or B S. Type of Services Relevant Section of No the Finance Act, 1994 1. Advertising Services 65(105)(e) 2. Asset Management Service 65(105)(zzzzc) 3. Auctioneers‘ Services other than in 65(105)(zzzr) relation to immovable property 4. Automated Teller Machine Services 65(105)(zzzk) 5. Banking and other Financial Services 65(105)(zm) 6. Broadcasting Services 65(105)(zk) 7. Business Auxiliary Services 65(105)(zzb) 8. Business Support Services 65(105)(zzzq) 9. Cable Operators‘ Services [including 65(105)(zs) Multi-System Operators‘ (MSO)] Services 10. Chartered Accountant‘s Services52 65(105)(s) 11. Company Secretary‘s Services53 65(105)(u) 12. Consulting Engineers‘ Services 65(105)(g) 54 13. Cost Accountant‘s Services 65(105)(t) 14. Credit Card and Other Payment Card 65(105)(zzzw) Services 15. Design Services 65(105)(zzzzd) 16. Development and Supply of Content 65(105)(zzzzb) Service Facsimile Services* 65(105)(zg) 17. Foreign Exchange Brokers‘ Services 65(105)(zzk) 18. Franchise Services 65(105)(zze) 19. General insurance services other than 65(105)(d) in relation to immovable property 20. Information Technology Software 65(105)(zzzze) Services 52. Effective from 27-02-2010, Chartered Account’s Services are covered under Category C services. 53. Effective from 27-02-2010, Company Secretary’s Services are covered under Category C services. 54. Effective from 27-02-2010, Cost Account’s Services are covered under Category C services.

S. No 21. 22. 23. 24.

25. 26. 27. 28. 29. 30.

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

43.

Type of Services

Relevant Section of the Finance Act, 1994 Insurance Auxiliary Services relating 65(105)(zl) to General Insurance Insurance Auxiliary Services relating 65 (105)(zy) to Life Insurance Intellectual Property Services (other 65(105)(zzr) than Copyrights) Internet 65(105)(zzzu) Telecommunication/Telephony Services Leased Circuits Services* 65(105)(zd) Legal Consultancy Services 65(105)(zzzzm) reLife Insurance (only Risk Cover) 65(105)(zx) Services Mailing List Compilation and Mailing 65(105)(zzzg) Services Management Consultants‘ Services 65(105)(r) Manpower Recruitment Services 65(105)(k) On-Line Information and Database 65(105)(zh) Access and/or Retrieval Services Pager Services* 65(105)(c) Programme Production Services 65(105)(zzu) (generally relating to TV and Radio) Public Relations Services 65(105)(zzzs) Rail Travel Agent Services 65(105)(zz) Recovery Agents‘ Services 65(105)(zzzl) Registrar to an Issue Services 65(105)(zzzi) Sale of Space or Time for 65(105)(zzzm) Advertisement Services Scientific & Technical Consultancy 65(105)(za) Services Share Transfer Agents‘ Services 65(105)(zzzj) Ship Management Services 65(105)(zzzt) Sponsorship Services 65(105)(zzzn) Supply of Tangible Goods for Use 65(105)(zzzzj) Services Survey and Map-making services 65(105)(zzzc) other than in relation to immovable property Telecommunication Services 65(105)(zzzx)

S. No

44. 45.

Type of Services

Relevant Section of the Finance Act, 1994 Telegraph Services * 65(105)(ze) * Telephone Services 65(105)(zzz) * Telex Services 65(105)(zf) Transport of Goods through pipeline 65(105)(zzz) or other conduit (other than water) ULIP Investment Management 65(105)(zzzzf) Services ———

*. Services de-notified and re-grouped as Telecommunication Service vide the Finance Act, 2007 (w.e.f. 01-06-2007).